Vodafone pensions

Q&As

Annual allowance

WHAT IS THE ANNUAL ALLOWANCE?

The annual allowance is the maximum amount of pension savings you can make each year that benefits from tax relief. This includes all pension savings that you make plus any savings made for you by Vodafone. There is no limit on the amount you can save in a pension scheme, but there is a limit on the amount that receives tax relief each year. If your pension savings are more than the annual allowance you will pay a tax charge on the amount over the annual allowance. This tax charge is called the annual allowance charge.

HOW MUCH IS THE ANNUAL ALLOWANCE?

The annual allowance is £40,000 a year, unless you are subject to the tapered annual allowance or the money purchase annual allowance.

You may be able to carry forward any unused annual allowances from the previous three tax years. You can view your historical Pension Input Period pension savings in the Plan through ePA, you may also need to contact your previous pension administrator to help you calculate the amount of carry forward available to you. Please note that carry forward is not available if you are subject to the money purchase annual allowance.

AM I LIKELY TO BE AFFECTED BY THE ANNUAL ALLOWANCE?

The annual allowance applies to everyone for every year they make pension savings. However, the annual allowance may only affect your tax bill in years that your pension savings are more than £40,000. So, although the annual allowance rules apply to everyone, most people will not be affected by the annual allowance.

Even if your pension savings are more than £40,000 in a year, you may not have an annual allowance charge if you have not used all your annual allowance in the last three tax years.

WHAT IS THE TAPERED ANNUAL ALLOWANCE?

You may be affected by the tapered annual allowance from April 2016 if your taxable earnings – not including pension contributions – are over £110,000. This is known as your ‘threshold’ income. If your threshold income (including your salary, any bonuses and income from other sources) is over £110,000, you will need to work out your ‘adjusted’ income.

You can do this by adding your threshold income to the total pension contributions made during the tax year by both you and Vodafone (or any other employer). If your adjusted income exceeds £150,000, from 6 April 2016 your annual allowance will be reduced. For every £2 that your adjusted income goes over £150,000, your annual allowance will reduce by £1 (see the table below). The lowest the annual allowance could reduce to is £10,000 (which will apply to you if your adjusted income is £210,000 or more).

Earnings Annual allowance
Up to £150,000 £40,000
£160,000 £35,000
£170,000 £30,000
£180,000 £25,000
£190,000 £20,000
£200,000 £15,000
£210,000+ £10,000

Carry forward unused allowance

If you are subject to the tapered annual allowance you may be able to carry forward any unused annual allowances from the three previous tax years.

You may need to contact Willis Towers Watson and, if applicable, your previous pension administrator to help you calculate the amount of carry forward available to you. Please note that carry forward is not available if you are subject to the money purchase annual allowance (see below for an explanation).

More information about carry forward is available on the HMRC website.

Capped contribution option

To help you make sure that you don’t exceed the tapered annual allowance, Vodafone has introduced a capped contribution option.

Under the capped contribution option, each month the contribution rates will be as follows:

  • 5% employee contribution (capped at £277,77 a month)
  • 10% employer contribution (capped at £555.54 a month)
  • Any difference between the capped employer contribution and 10% of pensionable pay will be paid as cash through payroll each month subject to tax and national insurance deductions.

If you are subject to a tapered annual allowance greater than £10,000 a year you might want to consider paying AVCs in addition to the capped contribution option.

If you would like to select this option, you can do so via My Choices.

You could also consider making savings elsewhere, for example, the Vodafone Save As You Earn (SAYE) plan, a Lifetime ISA or ISA.

HOW DO I OBTAIN INFORMATION ABOUT MY PENSION SAVINGS FROM MY PENSION SCHEME?

You can view your historical Pension Input Period pension savings in the Plan through ePA. You can also ask the administrator for a ‘pension savings statement’, but you should only need this if you think your total pension savings for the tax year will be more than your Annual Allowance.

If you ask your scheme administrator for a pension savings statement, they should give you this by the later of:

  • 6 October following the end of the relevant tax year
  • three months after receiving your request

If you have pension savings in more than one pension scheme you will need to contact the pension scheme administrator of each of your pension schemes separately.

WHERE CAN I FIND MORE INFORMATION?

You can find out more about the annual allowance on the HMRC website at www.hmrc.gov.uk/pensionschemes/understanding-aa.htm